Wednesday, November 03 2010

RBA raises rates This was unexpected by the market. It further highlights the trend that has emerged this year where the high A$ and high interest rates are placing pressure on the consumer, tourism and education sectors. These sectors are being crowded out to allow the inflation in the resource sector to flourish.

CBA provided an out of cycle rate rise which was expected. This should have a positive impact on profits for the banks of around 5% and offset the funding pressure they are experiencing as their lower cost funds roll off and are replaced with higher cost funds. We have been positioned for this rise with a preference for Westpac and CBA. The issue we are now considering is the political response. Will it be a meaningful response? We suspect the Government would like to encourage competition which has been largely absent for the last three years. It is possible that Australia Post will be used as a competitor and the Government might provide a range of responses to ease funding pressures on the regionals (note this would also be helpful for the majors in some respects).

Crown Crown™s Macau casinos held via Melco have produced an outstanding 3Q result of $136m. The City of Dreams Casino produced a profit of $114m up from $46m a year ago as it continues to grow its share of that market. Concerns around the Melco business breaching debt covenants has now been reduced and we would expect the Melco value to begin to be reflected in the Crown valuation.

Worley Worley announced a $580m contract win. They will be responsible for the upstream engineering contract for the BG coal seam methane project.

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